The US state of South Carolina is to drop its antitrust lawsuit against software giant Microsoft.

The company says there is sufficient competition in the Internet market.

South Carolina is the first state to pull out of the case, brought earlier this year by the federal government and 20 states.

South Carolina's Attorney General Charles Condon said AOL's proposed $4.2bn acquisition of Netscape Communications proved there was enough competition among Internet companies.

South Carolina says the case would not benefit customers

Mr Condon disagreed with other government lawyers who have said the case will benefit consumers.

"Consumers have not taken a leading role in this action. That's because there are no monopolies on the Internet," he said.

The lawsuit alleges that Microsoft improperly used its dominant position supplying computer operating system software on more than 90% of personal computers to wrest control of the Internet browser market from Netscape.

The trial is in its eighth week.

Microsoft shares leapt on the news, briefly trading at $132.75 before settling back to $131.25 up $4.875 in heavy afternoon trading on the technology-heavy Nasdaq index.

There was no immediate comment from other states in the case or from the Justice Department.